The Gold/Silver Ratio: Gold And Silver Are Going Higher

The price of gold and silver will both hit new highs in 2014. The price of gold goes north of $2,000, and silver will quickly go over $50. When it does, it will get a little crazy. – Eric Sprott, Sprott Investment Management – SilverDoctors.com

Since the Federal Reserve was founded, the GSR has ranged from 15 to 100. The low-end of the range usually correlates with bull market tops in gold/silver and vice versa with the high-end.Currently the GSR is 60, and I believe the recent movement in the GSR is signalling the possibility of a big move ahead for gold and an even bigger move for silver.

A reader the other day was inquiring about the gold/silver ratio (GSR). The GSR is an interesting metric that converts the price of gold and silver into the number of ounces of silver it would take to buy one ounce of gold. Over the entire course of history, that I know of, the GSR has been as low as 8, which was the fixed ratio used by the Roman Empire for exchanging gold and silver.

Interestingly – at least to me – if you look at the GSR over the last 350 years, it held steady at around 15 until the middle/late 1800′s. At that point in time it rose steadily as the gold standard was slowly eroded by United States. President Lincoln was actually the first President to disconnect gold and silver as the Constitutionally mandated currency when he allowed someone to use Government-issued bonds to settle a debt obligation (the action was later upheld by the Supreme Court under President Grant).

At any rate, to cut to the chase, since the Federal Reserve was founded, the GSR has ranged from 15 to 100. The low-end of the range usually correlates with bull market tops in gold/silver and vice versa with the high-end.

I don’t know if the next big move higher that I believe is coming will be the final stage of the precious metals bull market, but I do think that based on the extraordinary supply/demand fundamentals for gold that the next move will be big for gold and spectacular for silver.

Not bad, ancient reference… darn close to my prediction for future GSR.
I say under 9:1, cuz current mining ratios are in the 8.8 range!
We will see at least a 30:1 GSR if Silver and Gold go up very much at all.
It was 32:1 when Silver peaked in April 2011…

Gsr will be stoich or less when fiat fails, me thinks. If fiat stays, less than stoich because it is so rare. Someone said to look at pms like you were an alien. An alien would not want worthless paper. They would want gold and silver. They would exchange as much fiat for metal as they could.

“At any rate, to cut to the chase, since the Federal Reserve was founded, the GSR has ranged from 15 to 100. The low-end of the range usually correlates with bull market tops in gold/silver and vice versa with the high-end.

Currently the GSR is 60 and I believe the recent movement in the GSR is signalling the possibility of a big move ahead for gold and an even bigger move for silver.”

An interesting supposition, considering that a GSR of 60:1 is almost the exact center of the 15-100 range. When something bullseyes the center of its price range, the mathematical implication is that there is no preference for higher prices vs. lower ones.

@Ed_B
Good eye, you have identified proximity to the MEAN. But we are very far off of the weighted AVERAGE.
I would suspect that number is between 20 and 15 to 1, Mr. Ed! Average meaning total time @ a given GSR.

Thanks. Being a numbers kind of guy, I was looking for proof of the author’s contention that his data only supports a rising price.

It has been a while since we had a GSR anywhere near 15. Not that it can’t happen. Clearly, it can, because it has happened before. But, given the context of today’s US and world economies, what would cause this to happen? Yeah, lower gold and higher silver prices are the obvious answer but digging deeper into this as to what would cause them would be interesting. A large demand for and a short supply of silver is about all that seems reasonable. Does this seem likely?

IMO yes, a large demand with short supply is likely. But we need to overcome the MOPE and let folks see how this dilapidated old U$D is actually “performing”. Seems that it is revealing itself to everyone, more and more… Or shall I say “EXPOSING”?
I think the MOPE has the domestic demand “under control” for the moment. ASEs are flying out the door, but most other Silver products seem to be lagging a bit. This is due to the relentless attacks from all directions. (IMO) AND the industrial sector has slowed down also, which provides a bit more of supply to the investment community. Despite ALL of these negative factors, it seems Silver and Gold are emerging from the Bear’s Den!
I also believe that after the crash, when things settle down, EVEN with a return to a “new normal”, SILVER will stay at a new, higher, more natural GSR than these markets of MANIP-MANOP have held it to. 10:1 is a nice round number…

It would be nice, but not holding my breath. However the most intriguing comment I have read recently was from the Eric Sprott piece. He noted that BaFin in investigating the PM fixing that the manipulation is far greater than Libor. With significantly smaller markets in Gold and Silver, this must point to the price being massively out of whack. Enquiring minds …
JC

Yes, it is but just how realistic is that? Not very, IMO. Yes, it MAY have happened at some point back in ancient times but it was exceptionally rare in world history. If we look at just the last, oh, say, 500 years, the GSR getting to 10:1 was unusual. A ratio of 15-20:1 seems more realistic, although falling near the mined ratio of 9:1 does seem possible at some point. Question is, just when will that be? Could be a while.

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